What is a Trustee in Bankruptcy?
In practically every individual consumer bankruptcy case, regardless of whether it falls under Chapter 7 bankruptcy or Chapter 13 bankruptcy, there will be a bankruptcy trustee with various obligations and powers, depending on the case.
The Bankruptcy Estate and Bankruptcy Trustee
In order to understand what a trustee is and what they do, it is best to first get a clear understanding of the concept known as the "bankruptcy estate". Under bankruptcy law, at the time someone files for bankruptcy, a bankruptcy estate is created which is composed of the debtor's property. The bankruptcy estate is its own distinct legal entity separate from the bankruptcy debtor.
Of course, since the bankruptcy estate is not a person, that's where a bankruptcy trustee is needed to step in to play the role of overseeing the bankruptcy estate and performing various duties required by law, as well as the circumstances of a given bankruptcy case. Trustees are people who are appointed or selected to oversee particular bankruptcy cases or a particular type of bankruptcy.
What does a Bankruptcy Trustee Do?
A bankruptcy trustee's duties vary depending on the type of case, as well as the circumstances of a particular debtor and their creditors. In short, a bankruptcy trustee will not be doing the same things in every case, but below are some of the basic duties they have, depending on the type of bankruptcy that is filed.
The Trustee in Chapter 7 Bankruptcy Cases
The duties and powers of trustees in both chapters are similar in some ways, and many of the distinctions come down to the difference between each type of bankruptcy. Here are some of the primary duties and powers of a trustee in a Chapter 7 liquidation bankruptcy case:
- The trustee is in charge of rounding up all of a debtor's property;
- The trustee is in charge of selling the bankruptcy estate's property;
- The trustee is in charge of challenging creditors' claims, where appropriate;
- The trustee is in charge of distributing proceeds to creditors;
- The trustee is in charge of objecting to a bankruptcy discharge where grounds exist
The Trustee in Chapter 13 Bankruptcy
Unlike the gathering and sale of property that is involved in Chapter 7 liquidation bankruptcy, debtors in Chapter 13 reorganization bankruptcy keep possession of their property during the course of the bankruptcy. A trustee's main duties in these cases deal primarily with handling payments.
- The trustee is in charge of reviewing the debtor's proposed repayment plan;
- The trustee is in charge of making objections to the plan, as necessary;
- The trustee is in charge of receiving/collecting payments from the debtor pursuant to the established repayment plan;
- The trustee is in charge of distributing payments to creditors.
As the duties above suggest, in the great majority of consumer bankruptcies the trustee will play a big part. Whether reviewing claims by creditors, claims by debtors, or challenging other aspects of a bankruptcy case, the bankruptcy trustee will play a central role in how the bankruptcy proceeds.